The ongoing armed conflict between Israel and the armed Palestinian faction, Hamas, has sent shock waves through the Middle East. Accordingly, major South Korean companies like Samsung Electronics and Hyundai Motor, which have a significant presence in the area, are closely monitoring the situation. Despite the implementation of the “Number 1 Free Trade Agreement (FTA) in the Middle East” between South Korea and Israel in December of last year, the effects of this FTA are now in jeopardy as there are concerns that trade between the two nations could rapidly deteriorate. Depending on the duration of this crisis, there are also concerns that cooperation in cutting-edge research fields such as artificial intelligence (AI), robotics, and biotechnology between South Korean corporations and Israel may face disruptions.
Samsung Electronics announced on Oct. 8 that it activated its emergency communication network right after the previous day’s breaking news of a large-scale attack by the armed Palestinian faction, Hamas, against Israel. The company is closely monitoring the situation, including the local conditions and any damage to its subsidiaries. Samsung Electronics’ Israeli sales subsidiary and research center are located near Tel Aviv, more than 100 kilometers away from the border, and so far, there have been no reports of direct damage due to the current situation. LG Electronics also has a sales office in Tel Aviv, and there has been no reported harm to employees or their families. An LG Electronics spokesperson said, “We have transitioned all employees to remote work and are periodically checking on their safety at the office level.”
Israel is a region that Samsung Electronics has been investing in as a cornerstone for securing future advanced technologies. Lee Jae-yong, chairman of Samsung Electronics, visited Israel, including the Samsung subsidiary in Tel Aviv, on Sept. 28, which was about ten days before this recent crisis erupted. Samsung has established and operates local entities in Israel, such as Samsung R&D centers and Samsung Research Israel. In June, Kyung Kye-hyun, president and CEO of the Device Solutions division, visited Israel and had meetings with local quantum computing and AI startups.
According to market research firm StatCounter, Samsung holds a dominant 46.7 percent market share in the Israeli smartphone market as of September, significantly outpacing Apple which stands at 29.6 percent. LG Electronics, on the other hand, continues to collaborate with local startups and companies in Israel as part of its efforts to advance its automotive electrical and electronics business. It has recently acquired the Israeli cybersecurity firm Cybellum. Both companies are actively engaged in the home appliance business within Israel as well. According to market research firm Euromonitor, Samsung and LG held the first and second positions in the Israeli branded home appliance market with market shares of 12.9 percent and 12.3 percent, respectively, in 2022.
Hyundai Motor Group, currently holding the top position in Israeli market share, is also closely monitoring the recent situation. Hyundai and Kia Motors operating in the Israeli market hold the number one position with approximately 29 percent market share, considerably ahead of Toyota, the second-place contender, which has about 10 percent. According to market research firm Focus2Move, Hyundai Motor Group’s sales figures from January to August of this year show Hyundai leading with 36,459 units, or 15.8 percent, while Kia follows closely with 27,399 units, or 12.4 percent, in the second position. When combined, their market share reaches 28.7 percent, substantially ahead of Toyota’s 10.6 percent in the third position. Hyundai Motor Group has been operating in Israel through a distributorship model without a dedicated sales subsidiary.
The trade authorities and export industries are closely watching the possibility that the current crisis may dampen the efforts of both South Korea and Israel to expand their trade following the enactment of the South Korea-Israel FTA in December of last year. The South Korea-Israel FTA marked the first FTA between South Korea and a Middle Eastern country. It eliminated tariffs on over 95 percent of goods, with a particular emphasis on the immediate removal of the 7 percent automobile tariff. This had raised expectations for further expansion of exports for companies in the automobile and automotive parts industry, including Hyundai and Kia Motors.
During his visit to New York last month, President Yoon Suk-yeol held his first summit meeting with Israeli Prime Minister Benjamin Netanyahu since taking office, where he stated, “Close cooperation continues in the field of technology, including AI and alternative energy, between the two countries.” He also had urged for special attention to be given to the potential participation of South Korean companies in Israel’s ongoing transportation infrastructure expansion project.
The biggest concern in the domestic industry is whether there will be an increase in oil prices. A representative from the petroleum industry said, “Israel and the Gaza Strip are at a significant distance from major oil import routes. There will likely be limited immediate impact on oil prices since it does not directly affect key oil-producing countries like Saudi Arabia, Kuwait, Iraq, and others.”
However, it has been reported that it could potentially lead to fluctuations in oil prices if the conflict were to escalate to involve neighboring countries such as Saudi Arabia and Iran, which support Palestinian independence. Therefore, it is crucial for observers to monitor the international situation closely.
The aviation and maritime logistics industries are also closely monitoring the situation. Korean Air, which operates the Incheon-Tel Aviv route three times a week, has posted a notice on its website stating the possibility of “irregular operations” as the number of casualties gradually increases. Tomorrow’s flight schedule is currently under discussion as well. Korean Air said, “We prioritize passenger safety and will make decisions regarding future flights and operations after closely monitoring the local situation.”
The uncertainty in the international economy raises the possibility of further depreciation of the Korean won. On Oct. 9, the exchange rate was 1,349 won per dollar, slightly higher than the yearly low of 1,354.5 won, but it still remained at a low level. Industry insiders have expressed concerns, saying, “In the event of another full-scale conflict following the Russia-Ukraine war, preference for the safe-haven U.S. dollar may increase. Such a scenario could lead to exchange rate fluctuations, posing challenges for business operations.”